"The Dow closed today at its lowest mark in 12 years, and now it's becoming clear even to Obama supporters on Wall Street that his reckless agenda will make a bad situation worse." More at link; well worth the read....
Secretary of State Hillary Clinton has arrived in Israel on the first of what will no doubt be many visits. Beyond the simple self-interest of making her feel appreciated, most Israelis are genuinely glad that she was appointed to this job. The reason why is critical to understanding the future of U.S. Middle East Policy and U.S.-Israel relations.
What is most important is that Clinton is regarded as a realist. She watched her husband try really hard and put his prestige on the line in attempting to achieve an Israeli-Palestinian peace and saw him being made to look foolish by Palestinian leader Yasir Arafat and Syrian ruler Hafiz al-Asad who rejected his proposals. During the presidential campaign she courageously--and to her own cost--tried to explain the dangers to those dreaming only of a fast getaway from Iraq.
Moreover, it's not just that she spoke positively about Israel--a senator from New York could do no less--but that the way she explained her positions seemed to indicate she really understood the situation.
All things considered, then, one can believe the secretary of state doesn't accept four myths that some--though not all--of her colleagues in Washington and Europe embrace. She seems to know that:
--The Israel-Palestinian conflict is not the fulcrum of the Middle East whose solution will make Islamism, terrorism, Iran's nuclear weapons' program, anti-Western or anti-American sentiments, Iraq's instability, and all other regional problems disappear.
--The Israeli-Palestinian conflict is not easily solvable by pressure, the perfect plan, or hard work. Not only is peace not at hand, it isn't even at arms' length.
--Whatever part of the blame for continued conflict is due to Israel, a very large and decisive portion rests on the Palestinian side for reasons including the weakness of the Palestinian Authority and its leadership, the division into Hamas and Fatah regimes, and other issues.
--Bringing Hamas into the negotiating process is a mistake that would doom any chance for peace and might even bring the Palestinian Authority (PA) crashing down altogether. U.S. interests require that the PA survives as recognized Palestinian leader, while Hamas is an Iranian client whose triumph would hurt the U.S. strategic position in the region.
Secretary of State Clinton also knows that the new Israeli government is not yet in place and her first visit must be dedicated to getting acquainted with leaders and issues.
What are the problems for bilateral relations? A critical aspect is that no matter how skeptical Clinton is of the chances for progress, she wants to make it appear that she is actively engaged and making progress. The thing that will make her furious is that which makes her look bad. And she wants Israel to make her look good.
On some items, this is no problem. A high level of cooperation with the PA, supporting funds and military training for it within reason, is in Israel's interest. The West Bank economic and security situation is improving. Here, Clinton and Israel should agree.
Her next goal is a bit more difficult but reasonable: that Israel should dismantle more settler outposts, as Israel has promised. True, this presents political difficulties and potential confrontations with settlers, yet Israel's government should assert its authority. A serious effort on this front would bring a positive return from Washington with no cost to Israel's security.
Beyond this, the United States is likely to ask for Israel to stop expanding settlements, even for natural growth. Since the peace process's start 16 years ago Israel has publicly asserted that building homes for "natural growth," new adults on existing settlements, is part of the Oslo agreement.
If this were to change, Clinton could claim a victory of stopping settlements, usually portrayed by the PA as its main grievance, that is, excuse for not doing more itself. Such a concession should not be unthinkable but the question is what would Israel get in exchange? U.S. pressuring the PA to stop officially inspired anti-Israel incitement; changing its schools and media to advocate a two-state solution; greater U.S. backing for Israel's security regarding Gaza? Asking Israel to do something on the settlement issue is all right if--but only if--there is more real compliance from the Palestinian side.
Finally and importantly there is the question of Gaza. Clinton wants some quick success on that front, namely a ceasefire and resolution of humanitarian problems there. It will be tempting for her to insist that Israel reopens crossings unconditionally, without a real ceasefire or any release of Hamas's Israeli hostage. And Israel will explain why it has legitimate concerns which must be realized, lest a new war crisis emerge.
Of course, the two governments must begin to reach understandings about Iran. The new administration is determined to try engaging Tehran. Israel must convey the point that Washington should be alert to Iranian efforts to bully or fool the new president. The goal of stopping Iran's nuclear weapons' drive has to be the top priority; unilateral concessions in exchange for nothing should be avoided.
And the White House will hopefully not be shy in admitting when it finally concludes that Iran doesn't want to be friends. President Barack Obama has spoken of opening Iran's clenched fist. The danger is that Iran will do so only in order to slap America silly.
Early on this administration must comprehend that reputations will not be built, Nobel Peace Prizes won, or Arab and European cooperation won by sacrificing Israel's vital interests. In exchange, Clinton must see that Israel wants to make her look successful and to cooperate on reasonable terms. On such a basis of understanding and good will a very successful partnership can be built.
According to various sources, Huma is working in the Office of the Sec of State doing 'assistant' type work. She is also dating someone in the H of Representatives (presumably Tony Weiner, a pro Israel guy who represents a district in NYCity)
The military [approval ratings higher than the pols and the media] is one place you don't want to have a confrontation with anytime in the near future with all the crap the pols are already stuffing into the bag. However, the short track record shows the people in charge do not have a basic grasp of real history, only the Marxist dialectic of class warfare.
As 2009 opened, three weeks before Barack Obama took office, the Dow Jones Industrial Average closed at 9034 on January 2, its highest level since the autumn panic. Yesterday the Dow fell another 4.24% to 6763, for an overall decline of 25% in two months and to its lowest level since 1997. The dismaying message here is that President Obama's policies have become part of the economy's problem.
Americans have welcomed the Obama era in the same spirit of hope the President campaigned on. But after five weeks in office, it's become clear that Mr. Obama's policies are slowing, if not stopping, what would otherwise be the normal process of economic recovery. From punishing business to squandering scarce national public resources, Team Obama is creating more uncertainty and less confidence -- and thus a longer period of recession or subpar growth.
The Democrats who now run Washington don't want to hear this, because they benefit from blaming all bad economic news on President Bush. And Mr. Obama has inherited an unusual recession deepened by credit problems, both of which will take time to climb out of. But it's also true that the economy has fallen far enough, and long enough, that much of the excess that led to recession is being worked off. Already 15 months old, the current recession will soon match the average length -- and average job loss -- of the last three postwar downturns. What goes down will come up -- unless destructive policies interfere with the sources of potential recovery.
And those sources have been forming for some time. The price of oil and other commodities have fallen by two-thirds since their 2008 summer peak, which has the effect of a major tax cut. The world is awash in liquidity, thanks to monetary ease by the Federal Reserve and other central banks. Monetary policy operates with a lag, but last year's easing will eventually stir economic activity.
Housing prices have fallen 27% from their Case-Shiller peak, or some two-thirds of the way back to their historical trend. While still high, credit spreads are far from their peaks during the panic, and corporate borrowers are again able to tap the credit markets. As equities were signaling with their late 2008 rally and January top, growth should under normal circumstances begin to appear in the second half of this year.
So what has happened in the last two months? The economy has received no great new outside shock. Exchange rates and other prices have been stable, and there are no security crises of note. The reality of a sharp recession has been known and built into stock prices since last year's fourth quarter.
What is new is the unveiling of Mr. Obama's agenda and his approach to governance. Every new President has a finite stock of capital -- financial and political -- to deploy, and amid recession Mr. Obama has more than most. But one negative revelation has been the way he has chosen to spend his scarce resources on income transfers rather than growth promotion. Most of his "stimulus" spending was devoted to social programs, rather than public works, and nearly all of the tax cuts were devoted to income maintenance rather than to improving incentives to work or invest.
His Treasury has been making a similar mistake with its financial bailout plans. The banking system needs to work through its losses, and one necessary use of public capital is to assist in burning down those bad assets as fast as possible. Yet most of Team Obama's ministrations so far have gone toward triage and life support, rather than repair and recovery.
AIG yesterday received its fourth "rescue," including $70 billion in Troubled Asset Relief Program cash, without any clear business direction. Citigroup's restructuring last week added not a dollar of new capital, and also no clear direction. Perhaps the imminent Treasury "stress tests" will clear the decks, but until they do the banks are all living in fear of becoming the next AIG. All of this squanders public money that could better go toward burning down bank debt.
The market has notably plunged since Mr. Obama introduced his budget last week, and that should be no surprise. The document was a declaration of hostility toward capitalists across the economy. Health-care stocks have dived on fears of new government mandates and price controls. Private lenders to students have been told they're no longer wanted. Anyone who uses carbon energy has been warned to expect a huge tax increase from cap and trade. And every risk-taker and investor now knows that another tax increase will slam the economy in 2011, unless Mr. Obama lets Speaker Nancy Pelosi impose one even earlier.
Meanwhile, Congress demands more bank lending even as it assails lenders and threatens to let judges rewrite mortgage contracts. The powers in Congress -- unrebuked by Mr. Obama -- are ridiculing and punishing the very capitalists who are essential to a sustainable recovery. The result has been a capital strike, and the return of the fear from last year that we could face a far deeper downturn. This is no way to nurture a wounded economy back to health.
Listening to Mr. Obama and his chief of staff, Rahm Emanuel, on the weekend, we couldn't help but wonder if they appreciate any of this. They seem preoccupied with going to the barricades against Republicans who wield little power, or picking a fight with Rush Limbaugh, as if this is the kind of economic leadership Americans want.
Perhaps they're reading the polls and figure they have two or three years before voters stop blaming Republicans and Mr. Bush for the economy. Even if that's right in the long run, in the meantime their assault on business and investors is delaying a recovery and ensuring that the expansion will be weaker than it should be when it finally does arrive.
So what has happened in the last two months? Merely the unfolding of a disaster. It has taken years to set the stage, and the play will take years to complete. The fear from last year that we could face a far deeper downturn is well-founded.
The reality of a sharp recession has been known and built into stock prices since last year's fourth quarter. The reality might be known, but its ultimate scope is unknown and unknowable at the present. If you think stock prices are low now, what would you think if a stock was offered for sale, and there are no bids for it? Capital is not on strike so much as holing up in a compound with guns, ammo & canned goods. Anyone who uses carbon energy -- that's each and every one of us -- has been warned to pay far more than currently for the necessities of daily life expect a huge tax increase from cap and trade That is the stupidest move made by Obama so far. I expect many more stupid moves by him unless he has a "road to Damascus" moment.
I stumbled across an old Powerpoint show I got in an e-mail months ago that told a similar stor with stick figures and bad words.
The conclusion also applies to Global Warming:In the world of finance, too many quants see only the numbers before them and forget about the concrete reality the figures are supposed to represent. They think they can model just a few years' worth of data and come up with probabilities for things that may happen only once every 10,000 years. Then people invest on the basis of those probabilities, without stopping to wonder whether the numbers make any sense at all.
Excellent - Chinese tires, pet food, milk, and now Chinese math. Of course, for Wall Street to have been hurt, they had to have bought what was being sold. And they did - hook, line and sinker. Guess what? The same short cuts the Chinese have taken in making tires, pet food and milk were present in this guy's math. And the smartest guys in the room bought it anyway - it would be have been politically-incorrect to do otherwise.
It's the same mistake made by cost-cutting American vendors with dollar signs in their eyes who decided to outsource manufacturing to China without carefully inspecting each shipment received from their Chinese suppliers. They brought it on themselves. Actually, given that Uncle Sam is on the hook for bailout expenses, they brought it on our heads.
The story has a happy ending - he's back in China working for the government. Here's to hoping that this math whiz will do for the Chinese all the good things he's been doing for our capital markets.
Impressive title, but this was only one of many models used in the financial markets, and the models aren't the cause.
The primary cause of the financial breakdown is too much debt, private and public, domestic and worldwide.
The secondary causes are 1)the intertwining of assets and liabilities between financial institutions, which makes it difficult to allow the weak to fail without dragging down others, 2)public policy initiatives to push credit to weak borrowers (both domestic households and emerging economies), and 3)keeping interest rates too low for too long.
Wall Street was the (willing) facilitator, the models were tools. There weren't any models in 1929, but the world ended up in much the same place.
warnings about its limitations were largely ignored
When engineers do this, buildings collapse. But we don't blame the formula, we blame the engineers. Like the government that pushed mortgages for uncreditworthy people and now blames deregulation, the financial community would like to blame a formula. The truth is incompetence and greed, not a formula.
The problem with this model is the same problem with ALL models of complex systems.
There is a need to simplify the equations or it makes no sense and is worthless. See his use of gamma as a constant. This is the same kind of crap that the AGW people try and pull off with their idea that the effect of the Sun is a minor (constant) factor.
Mass human psychology cannot be successfully modeled such that individual behavior is understandable. Just as with climate there are too many variables that are not quantifiable for a model to work reliably for all cases.
If this was deliberate on Li's part (which I doubt) he would be the perfect con-man. Cause, remember, you can't con an honest man. The people conned, seduced and bamboozled were so because they were in the market for cheap riches and heard what they wanted to hear.
The crucial part of the article is where it points out that everyone who understood the limitations of the formula were not authorized to make investment decisions, and everyone who was authorized to make investment decisions didn't understand the formula.
This is a perscription for disaster.
Posted by: Frozen Al ||
03/03/2009 11:33 Comments ||
No, the perfect formula for disaster was the fact CEOs were not playing with their own money and that there were no provisions about losses and ticking time bombs.
Let's see: as a CEO my ultimate goal is not having my company make money but myself making money. Ok? Now, consider this. I get my company grow on a solid basis and get paid 10 for two years that is I make twenty. Or, I go the glitz way manage to push the stock through the rood for one year, cash 100 and next year it is revaled that I invested on smoke and mirrors and company bankrupts. Total gain 100 instead of 20. This is not theoretical since a lot of the CEOs who were at the helm during the meltdown have retired with enough money to buy a small country. Had they faced the prospective of the 100 being taken way and they being liable for damages the bubble would have never taken these proportions.
as a CEO my ultimate goal is not having my company make money but myself making money But, but, if people really understand that, they will never invest in the stock market. Maybe they are beginning to understand it now.
For many many years, financial CEOs were compensated mainly in salary with relatively small bonuses, a little stock and large pensions tied to the company's health. This rewarded longer term thinking and prudence.
Then in the early 90s there was a huge push to shift compensation to 'pay for performance'. This shift came as a result of ordinary people now owning stock in 401ks and hearing about skyrocketing valuations on tech IPOs.
Boards gave in under pressure from stockholders. Older style CEOs were eased out and risk takers deliberately hired.
That's the background to JFM's comment about ultimate goals. CEOs weren't the only or even the first ones to be greedy. The roots lie in shareholders who saw their new, self-traded or at least personally owned, stock accounts as get rich schemes in the Clinton go-go years.
Then in the early 90s there was a huge push to shift compensation to 'pay for performance'. This shift came as a result of ordinary people now owning stock in 401ks and hearing about skyrocketing valuations on tech IPOs. Boards gave in under pressure from stockholders. Nope, ordinary stockholders did not push for this drastic revision of corporate incentives, that was a job for the insiders. Once upon a time, people pooled their resources in public corporations so as to all share in its profits and suffer its losses. It was like an economic democracy. Some of the gains were from stock appreciation, some from dividends. That basic function of stock ownership and corporate governance went by the boards a long, long time ago.
A similar example (I will tell why at the end)
was Soviet Union. The more you produced the more you were paid but what you produced was evaluated in quantitative not economic terms. So a worker in a tire plant was paid ze big bucks if he produced three or four times what was assigned by the plan. How do you do it? By cutting on finishing and quality control. And the plant manager had no interest in exposing you because he too was paid according to plant's output. Also if he managed to double the production he was rewarded. It was not his fault if the production of cars had not raised in same proportion so zillions of tires were decaying in the warehouses. If he had managed to do it despite not getting a single additional ounce of rubber would not prevent him of being promoted and getting the Lenin order medal. Too bad for the (fortunataly rare) car owners. End result was that over a half of what the Soviet Union produced fell apart before leaving the factory.
So greed is the motor of economy and when you manage to tie it to economic performance (something that it is structurally impossible in socialim) it can produce capitalism's wonderful achievements. But when earnings are not linked to real economic performance it leads to disaster and the higher the incentives the earlier and graver the capsizing as economic agents push in the wrong direction in order to maximize their personal gains.
I understand that, JFM. I have an MBA in finance and operations from a highly rated business school.
With the introduction of computer-traded derivatives, especially 2nd and 3rd order derivatives, however, 'real economic performance' became hard to measure for financial institutions in the short term. And it was in the short term that CEOs began to be compensated.
Yes, highly short-sighted (literally). Once I understood that I became very stodgy and conservative with my own savings at a time when a lot of people I knew were making profits by day trading over the Internet.
A multi-volume chronology and reference guide set detailing three years of the Mexican Drug War between 2010 and 2012.
Rantburg.com and borderlandbeat.com correspondent and author Chris Covert presents his first non-fiction work detailing
the drug and gang related violence in Mexico.
Chris gives us Mexican press dispatches of drug and gang war violence
over three years, presented in a multi volume set intended to chronicle the death, violence and mayhem which has
dominated Mexico for six years.